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AP Microeconomics > Basic Concepts > Flashcards

Basic Concepts Flashcards

1
Q

Positive Economics

A

Describes the way things are

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2
Q

Normative Economics

A

Addresses the way things should be

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3
Q

Economics

A

The study of how to allocate scarce resources among competing ends

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4
Q

Resources

A

Are inputs or factors of production

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5
Q

Labor

A

The physical and mental effort of people

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6
Q

Human Capital

A

Knowledge and skills acquired through training and experience

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7
Q

Entreprenuership

A

The ability to identify opportunities and organize production, and the willingness to accept risk in the pursuit of rewards

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8
Q

Natural Resources/Land

A

Either term can refer to any productive resource existing in nature, including wild plants, mineral deposits, wind, and water

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9
Q

Capital

A

Manufactured goods that can be used in the production process, including tools, equipment, buildings, and machinery

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10
Q

Opportunity Cost

A

The value of the best alternative sacrificed as compared to what actually takes place

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11
Q

Production-Possibilities Frontier/Curve (PPF/PPC)

A

Illustrates the choices an economy faces and the opportunity cost of making one good rather than the other

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12
Q

Efficiency

A

Means that the economy is using all of resources productively

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13
Q

Slope

A

Rise over run

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14
Q

Absolute Value

A

The value after removing the negative sign, indicates the average opportunity cost of the horizontal axes between those two points

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15
Q

Division of Labor

A

Permits people to develop expertise in the tasks that they concentrate on

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16
Q

Absolute Advantage

A

An individual has this in the production of a good when it can produce that good using fewer resources per unit of output than another individual

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17
Q

Comparative Advantage

A

An individual has this in the production of a good when it can produce that good at a lower opportunity cost than another individual

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18
Q

Allocative Efficiency

A

Requires that national output reflect the needs and wants of consumers (Marginal Cost = Marginal Value)

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19
Q

Marginal Cost

A

The cost of producing one more unit

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20
Q

Marginal Value

A

The value of one more unit

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21
Q

Technical Efficiency

A

When an economy is seeking how much of each input to use in the production process ((MPK/r) = (MPL/w))

22
Q

Wage

A

Price of labor

23
Q

Rental Rate

A

Price of capital

24
Q

Marginal Product of Labor (MPL)

A

The additional output produced by one more unit of labor

25
Q

Marginal Product of Capital (MPK)

A

The additional output produced by one more unit of capital

26
Q

Distributive Efficiency

A

Requires that those who place the highest relative value on goods receive them

27
Q

Marginal Utility (MU)

A

The additional utility from the last unit (Max Utility = (MU1/P2) = (MU2/P1))

28
Q

Marginal Rate of Substitution (MRS)

A

Condition for distributive efficiency is that MRS must be equal for every individual (MRS = MU2/MU1)

29
Q

Communism

A

A system designed to minimize imbalance in wealth via the collective ownership of property (Wealth is equally distributed among the people)

30
Q

Socialism

A

Shares with communism the goal of fair distribution and the pitfall of inadequate incentives (Wages are determined by negotiations between unions and managers)

31
Q

Capitalism

A

Private individuals control the factors of production and operate them in the pursuit of profit

32
Q

Demand Curve

A

Displays the relationship between price and the quantity demanded of a good within a given period

33
Q

Demand Schedule

A

Lists Prices and Quantities at given intervals

34
Q

Law of Diminishing Marginal Utility

A

The decreasing satisfaction gained from additional units of a good consumed in a given period

35
Q

Law of Demand

A

As the price of goods rises, so does the quantity demanded and vice versa

36
Q

Supply Curve

A

Shows the relationship between price and quantity supplied

37
Q

Supply Schedule

A

Lists Price and Quantities at given intervals

38
Q

Law of Supply

A

As price increases, quantity decreases and vice versa

39
Q

Marginal Cost

A

The additional cost of producing another unit

40
Q

Equilibrium Point

A

The intersection between the Supply and Demand curves

41
Q

Surplus

A

Producers selling too much of a good than is demanded

42
Q

Shortage

A

Producers selling to little of a good than is demanded

43
Q

Determinants of Demand

A
  • Tastes/Preferences
  • Substitute Goods
  • Complements
  • Income for Normal Goods
  • Income for Inferior Goods
  • Number of Buyers
  • Expectations of Future Income
  • Expectations of Future Prices
  • Expectations of Future Shortages
  • Taxes and Subsidies
  • Regulations
44
Q

Determinants of Supply

A
  • Input Costs
  • Technology
  • Expectations of Prices
  • Number of Sellers
  • Substitutes in Production
  • Joint Product Prices
  • Subsidies
  • Regulations
45
Q

Normal Good

A

A good a consumer buys when there income increases

46
Q

Inferior Good

A

A good that the consumer buys when there income decreases

47
Q

Consumption Smoothing

A

Spending more because you know you will receive more money in the future

48
Q

Price Ceiling

A

An artificial cap on the price of a good

49
Q

Queuing Cost

A

The time a consumer loses waiting for a good

50
Q

Price Floor

A

An artificially imposed minimum price

51
Q

Minimum Wage

A

Price floor on the price of labor

AP Microeconomics (6 decks)

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